Which of the following is TRUE regarding the purchase of a call option?
Which of the following is TRUE regarding the purchase of a call option?
The yield on the purchaser’s portfolio would increase by purchasing the option
The purchaser would limit the amount of money he could lose if the underlying stock declined.
The purchaser would benefit if the underlying stock declined.
The purchaser would exercise the option if the stock declined.
2
Which of the following is a FALSE statement about the point-of-view of the call option holder:
In-the-money is when the underlying price is greater than the stock price
At-the-money is when the underlying price is equal to the stock price
Out-of-the money is when underlying orice is greater than the stock price
After-the-money is when the premium is deducted from the underying stock price
3
Which of the following option strategies has the greatest amount of investor risk?
Buying a long straddle
Writing an uncovered put
Writing an uncovered call
Buying a long combination
4
How can you describe “derivative” markets?
Something that cannot exist on its own
Finanical market instruments
Financial market indices
Spot finanical instruments
5
A writer of an uncovered call option would profit if the
Underlying common stock goes up
Underlying common stock goes down
Call expires
I only
II only
I and III only
II and III only
6
Derivatives “piggyback” on:
The debt market
The equity market
The forex market
The commodity market
I and II
I, II, and III
I, II, IV
I, II, III and IV
7
List the advantages of the forward markets:
Flexibiity with regard to delivery dates
Flexibility with regard to size of contract
Quality of the asset
Transation costs are locked
I and II
I, II and III
I, II and IV
I, II, III, and IV
8
Your client purchased 300 shares of Speedy Airlines common stock at $28 a share in July of 2015. In June of 2016 the client writes 2 October 35 calls at 5 against the stock position. If the market of Speedy Airliens is trading at $39 at expiration, what is the client’s realized gain?
$1,000
$1,700
$2,400
$4,300
9
Futures differ from options in all of the following ways EXCEPT:
The future buyer has the obligation to buy the commodity at the specified price and at the spcified time.
The option buyer has the obligation to buy the security at the specified price and at the specified time.
Futures contracts require the delivery of an asset at the settlement date (or offsetting transaction); options may be exercised at any time up to the expiration date, or they may expire unexercised.
Future contracts can be both on margin, while options cannot.
10
A Put is an Option to Sell:
True
False
11
John, a short seller is trying to determine his break-even point. With no other securities, John plans to short sell 100 shares of XYZ at $40. Next John plans to sell an XYZ October Put for $500. John will break-even when the price of the stock is at:
$35
$50
$45
$40
12
A Call is an Option to Buy:
True
False
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